I.R.C. 6015

The United States Tax Court in Jane M. Lassek, Petitioner, and Michael E. Smith, Intervenor v. Comm’r, Docket No. 25395-16, Filed October 28, 2019 provided the Petitioner (wife) with partial innocent spouse relief for one year and denied relief for another.  The liabilities at issue begin with the 2011 year in which Intervenor (husband) prepared a return and improperly characterized his 401(k) distribution in the amount of $46,477 as nontaxable.  The Service determined a deficiency of $14,996 and penalties of $3,026.  The petitioner never reviewed the return as it was electronically filed by the Intervenor. In 2012, both took distributions from their retirement and both signed the return.  They had no plan for how they intended to pay the balance.  The parties ultimately divorced and their divorce decree was silent in regards to the tax liabilities. In reviewing the years at issue, the Court ruled that the Petitioner should be granted relief for the 2011 year under I.R.C. 6015 (c) – a section that limits a spouse’s liability to the portion of the deficiency properly allocable to that spouse under 6015(d).  This is available because the tax due did not appear on the face of the return. The Court granted relief because it did not believe that the Petitioner had actual knowledge of Intervenor’s 2011 401(k) distribution.  As for tax year 2012, the Petitioner failed to qualify for relief. She admitted at trial that she would not suffer economic harm if relief was not granted.  Further, Petitioner failed because she could not reasonably believe that Intervenor would or could pay the tax liability.  This case is a good review of the multi-level and multi-factor analysis of equitable relief under 6015(f).